Optimal Tariffs: The Evidence

43 Pages Posted: 15 Jun 2006

See all articles by Christian M. Broda

Christian M. Broda

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Nuno Limão

University of Maryland - Department of Economics

David E. Weinstein

Columbia University - Graduate School of Arts and Sciences - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2006

Abstract

The theoretical debate over whether countries can and should set tariffs in response to export elasticities goes back over a century to the writings of Edgeworth (1894) and Bickerdike (1907). Despite the optimal tariff argument's centrality in debates over trade policy, there exists no evidence about whether countries actually apply it when setting tariffs. We estimate disaggregate export elasticities and find evidence that countries that are not members of the World Trade Organization systematically set higher tariffs on goods that are supplied inelastically. The result is robust to the inclusion of political economy variables and a variety of model specifications. Moreover, we find that countries with higher aggregate market power have on average higher tariffs. In short, we find strong evidence in favour of the optimal tariff argument.

Keywords: WTO, GATT, international trade, optimal tariffs, trade policy

JEL Classification: F13, F14, H21

Suggested Citation

Broda, Christian M. and Limão, Nuno and Weinstein, David E., Optimal Tariffs: The Evidence (March 2006). CEPR Discussion Paper No. 5540. Available at SSRN: https://ssrn.com/abstract=909297

Christian M. Broda (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nuno Limão

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-7842 (Phone)
301-405 3542 (Fax)

David E. Weinstein

Columbia University - Graduate School of Arts and Sciences - Department of Economics ( email )

420 W. 118th Street
MC 3308
New York, NY 10027
United States
212-854-6880 (Phone)
212-854-8059 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
25
Abstract Views
826
PlumX Metrics